Trump’s Warning Shot on Trade Risks Igniting a Wider Conflict

“The level of tension between the United States and its major trading partners is probably more tense than it has been at any time since the early 1980s,” said Meredith Crowley, an international trade expert at the University of Cambridge in England.

Whether Mr. Trump has begun a trade war or merely a skirmish will depend on what happens next — which countries win a reprieve from the tariffs, and which opt to retaliate.

Mr. Trump’s decision to back off from across-the-board tariffs came in the face of strident warnings from the American business world and leaders of his own Republican Party that such a course would damage the American economy and alienate allies.

Still, Mr. Trump brushed aside talk that tariffs were a reckless provocation, appearing to relish his role as instigator. “Trade wars are good and easy to win,” he tweeted this month.

Mr. Trump maintains that Americans have been outwitted by savvier trading partners, with tariffs needed to force jobs to return to the United States.

History has proved humbling for those inclined to seek victory through trade conflicts. Commerce has tended to plunge, with the working class suffering lost jobs and diminished livelihoods. Alliances have been frayed, heightening international tensions.

Many economists and international-relations experts assume that Mr. Trump’s tariffs could play out much the same way, isolating the United States while imperiling a global economic expansion.

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Not least, the tariffs seem likely to present the World Trade Organization with a potentially existential crisis.

Photo

The Steel Speed fabrication plant in Sault Ste. Marie, Ontario. The United States steel tariffs will exempt Canada to start and will hinge on Nafta renegotiations.Credit
Ian Willms for The New York Times

The organization has been described as the referee for global commerce, settling disputes on the basis of rules adopted by consensus among its 164 members. Now, the referee may be on the verge of losing control of the game.

In justifying its tariffs as a response to a supposed threat to national security — a contention that has drawn derision from economists — the Trump administration has virtually ensured a challenge from the European Union via a complaint filed with the trade organization. That would put the institution in a predicament in which any course risks undermining its authority.

The trade organization could rule in favor of the United States, deferring to American sovereignty and its right to determine its national security policies. But that would hand every country on earth a template to break with the norms of international trade.

“This would open the floodgates to everyone bringing in broad exceptions,” said Ms. Crowley, the Cambridge expert.

Or the body could rule against the United States, rejecting the argument that metal forged in Europe poses a mortal peril to Americans. The Trump administration might then ignore the ruling and carry on, forcing the W.T.O. to give countries the right to retaliate.

Hostilities would most likely expand well beyond steel and aluminum. Mr. Trump’s pledge of tariffs has enraged and astounded American allies whose fortunes are tied to producing these metals, like Japan, South Korea, Germany and Taiwan.

On Wednesday, the European Union outlined plans to retaliate with tariffs on a variety of American goods, including motorcycles, rice and bourbon. If reprisals continued, Europe might limit exports of other American agricultural products, intensifying its push against genetically modified crops. In the most extreme case, Europe might even impede American investment.

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“It’s a real chance that everyone reacts very negatively,” said Jennifer A. Hillman, an international trade expert at Georgetown Law Center in Washington.

Faced with a rebuke from the global trading body, Mr. Trump might pull the United States out of the institution.

As he addressed a delegation at the trading body’s Geneva headquarters on Monday, W.T.O.’s director general, Roberto Azevêdo, worried openly about a descent into a trade war.

“It is clear that we now see a much higher and real risk of triggering an escalation of trade barriers across the globe,” he said. “Once we start down this path, it will be very difficult to reverse direction. An eye for an eye will leave us all blind and the world in deep recession.”

Trade frictions are a constant in the global economy. Governments wield tariffs, import quotas and other instruments to protect sensitive industries. But a trade war is different, holding the potential to damage living standards on multiple continents.

“You start viewing it as a conflict between nations,” said Adam S. Posen, president of the Peterson Institute for International Economics, a research institution in Washington. “You put a premium on doing damage rather than deterring bad behavior.”

Photo

A cargo ship in Qingdao, on China’s northeast coast. The country is the United States’ primary trade antagonist.Credit
Agence France-Presse — Getty Images

Mr. Trump and his advisers appear to be calculating that, as the largest economy on earth, the United States possesses enough muscle to dictate the terms of world trade.

“They are under the delusion that the United States has been screwed by the global system that it created,” Mr. Posen said. “They apparently think that everyone else will fold if they stand up.”

That idea, he added, is about to be exposed as wrong.

As the United States grappled with the Great Depression, a Republican-controlled Congress seized on protectionism as the fix, adopting the infamous Smoot-Hawley Tariff Act of 1930 to wall off American farms and factories from foreign competition.

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The law sharply increased tariffs on hundreds of goods — from sugar to shoes to iron. American trading partners responded with their own tariffs, and commerce deteriorated, deepening the depression.

After Democrats captured control of Congress and the White House in 1932, tariffs fell sharply, bolstering American trade. But Britain, France, Germany and other European powers maintained steep tariffs. Trade disintegrated, exacerbating nationalist animosities that exploded into World War II.

The last substantial outbreak of trade hostilities played out in the 1980s, as the United States grappled with the consequences of a rising Japan. The American auto industry — caught unprepared for the public’s embrace of smaller, more fuel-efficient vehicles — lobbied Washington for tariffs to limit a surge of Japanese imports. President Ronald Reagan ultimately pressured Japan to voluntarily restrict auto exports to the United States.

Japanese-made automobiles sold in the United States soared in price. Seeking to avoid tariffs while improving trust, Japanese car companies began setting up plants to make their vehicles in the United States, employing American workers.

Trade advisers to Mr. Trump cite this history as an example of how an aggressive stance can set up fruitful trade negotiations. But major differences separate that episode from today.

Back in the 1980s, auto plants needed to be built somewhere to serve swelling American demand for small cars. Japan was firmly dependent on good relations with Washington for its security, making it prone to avoid conflict.

Today’s primary American trade antagonist is China, ruled by the apparent president-for-life Xi Jinping, whose nationalist credo does not leave room for caving to pressure from Washington. The world faces a glut of steel, much of it made in China. Whatever tariffs the Trump administration maintains, foreign steel manufacturers are not likely to construct new plants in the United States.

Among proponents of liberalized trade, the most hopeful history may be the most recent chapter.

In 2002, President George W. Bush put tariffs on steel to protect American producers against imports. Then, as now, companies that make products using steel vastly outnumbered those that produce the metal. As automakers and other steel buyers confronted higher costs, the tariffs eliminated some 200,000 jobs, according to one study.

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Foreign steel producers filed a challenge at the W.T.O., which ruled that the United States had acted without justification. Europe prepared a list of American goods to stick with retaliatory tariffs. Mr. Bush backed down.

But if the global trading apparatus successfully defused that crisis, the current situation presents a different challenge given the nature of the commander waging the attack.

“The fundamental view of this administration seems to be, somewhat bizarrely, that the United States has not benefited from trade,” Ms. Crowley said. “It seems like it’s not really registering how damaging this could be.”

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